Despite an enormous and persistent black-white wealth gap, the ascendant American narrative is one that proclaims our society has transcended the racial divide. But wealth is a paramount indicator of social well-being. Wealthier families are better positioned to afford elite education, access capital to start a business, finance expensive medical procedures, reside in higher-amenity neighborhoods, exert political influence through campaign contributions, purchase better legal representation, leave a bequest, and withstand financial hardship resulting from an emergency.
The wealth gap is the most acute indicator of racial inequality. Based on data from the 2002 Survey of Income and Program Participation, white median household net worth is about $90,000; in contrast it is only about $8,000 for the median Latino household and a mere $6,000 for the median black household. The median Latino or black household would have to save nearly 100 percent of its income for at least three consecutive years to close the gap. Furthermore, 85 percent of black and Latino households have a net worth below the median white household. Regardless of age, household structure, education, occupation, or income, black households typically have less than a quarter of the wealth of otherwise comparable white households.
Since the election of Barack Obama, a growing belief has emerged that race is no longer a defining feature of one's life chances. But the extraordinary overlap between wealth and race puts a lie to the notion that America is now in a post-racial era. The smallest racial wealth gap exists for families in the third quartile of the income distribution where the typical black family has only 38 percent of the wealth of the typical white family. In the bottom income quartile--the group containing the working poor--a black family has a startlingly low 2 percent of the wealth of the typical white family.
Those who recognize the racial wealth gap but still embrace the idea of a post-racial America have crafted two explanations for this disparity. The first is that, in search of immediate gratification, blacks are less frugal when it comes to savings. Indeed, in an April lecture at Morehouse College, Federal Reserve Chair Ben Bernanke attributed the racial wealth gap to a lack of "financial literacy" on the part of blacks, particularly with respect to savings behavior.
Such an explanation, however, is not the ease. Economists ranging from Milton Friedman to Marjorie Galenson to the recently deceased founder of the Caucus of Black Economists, Marcus Alexis, found that, after accounting for household income, blacks historically have had a slightly higher savings rate than whites. In 2004, economists Maury Gittleman and Edward Wolff also found that blacks save at a moderately higher rate than do whites, again after adjusting for household income. This indicates even greater black frugality because many higher-income blacks offer more support to lower-income relatives than do whites, further reducing their resources to save.
The second explanation given to support the post-racial narrative is that inferior management of assets owned by blacks has resulted in lower portfolio returns. However, recent research finds no significant racial differences in asset appreciation rates for families with positive net worth.
Recessions disproportionately affect black and Latino families. During the 1999-2001 recession, median household wealth fell by 27 percent for both Latinos and blacks, while it grew by 2 percent for whites. The current recession likely will worsen the racial wealth gap. Although whites are more likely than blacks to own their home, the share of black wealth in the form of housing is nearly twice as large as the white share. And with blacks far more likely than whites to have been steered toward sub-prime loans in discriminatory credit markets, the foreclosure crisis is bound to have a more deleterious effect on black wealth than on white wealth. …